POLAND: Analysts Warn That Election Outcome May Delay Fiscal Consolidation

Most sell-side analysts argued that the immediate impact of Poland's presidential election on local markets will be limited, but the perception that it may be more difficult to keep power beyond the 2027 parliamentary election may discourage the government from implementing fiscal consolidation measures.

• Crédit Agricole point to the high probability of an escalation in tensions between the President and the Prime Minister, which would boost the risk of institutional paralysis, delay the reforms requested by the European Commission, and increase pressure to loosen fiscal policy - which will be negative for the zloty and POLGBs.
• ING expect modest zloty depreciation in reaction to the election results, as many investors had already taken short PLN positions before. They also see potential for POLGB yield curve flattening and an increase in credit risk premium. In their view, the probability of fiscal consolidation has decreased, while the results are testament to a growing political polarisation, which may encourage populist tendencies on both sides of the political spectrum and undermine investor sentiment.
• Millennium Bank leave their macroeconomic forecast until the 2027 parliamentary election unchanged, due to the President's limited competencies in economic policy. However, they point to a higher risk of political instability and argue that the probability of a change of government after the 2027 election has increased, which will discourage the current coalition from fiscal consolidation. They point to a significantly more uncertain outlook beyond 2027.
• Pekao expect market reaction to be limited, given that the presidential election does not have direct impact on economic policy, although it does change the distribution of risks for the years ahead. They write that investors must now reckon with the risk of a snap election, we should not expect any other form of fiscal consolidation than a passive one, while the risk of continuation in monetary policy has increased.
• PKO write that a potential power struggle between the President and the government may delay structural reforms until the next parliamentary election, postponing fiscal consolidation, which could pressure the NBP into maintaining higher interest rates and adopting a tighter monetary policy stance.
• Santander believe that a victory for an opposition politician increases the risk of political destabilisation and a more expansive fiscal policy over the next two years preceding the 2027 parliamentary election. They remind that Nawrocki will appoint one MPC member this year, and two more in 2028, when he will also propose a candidate for the position of the Governor. In their view, Nawrocki's win may again decrease the willingness of the MPC under Governor Glapiński's leadership to reduce interest rates in the coming months.